Buyers are getting more for their money as home shopping season approaches

Rhea-AI Summary

As mortgage rates have slightly decreased, buyers are gaining more purchasing power, particularly in more affordable markets like Memphis and the Midwest. A $3,000 monthly mortgage payment now allows for the purchase of homes valued around $620,000, up $60,000 from last October, while the average home size has increased by 84 square feet. However, the overall purchasing power remains lower than last year, with homes being 140 square feet smaller than in early 2022. Markets like Hartford and Indianapolis experienced significant declines in square footage available. Zillow's analysis shows that home shoppers should improve credit scores to secure better mortgage rates.

Positive

• Buyers can now afford larger homes as mortgage rates have eased.
• Average home values associated with a $3,000 payment have increased by $60,000 since October 2022.
• Home size has recovered by 84 square feet since the last decline.

Negative

• Overall, homes are still 140 square feet smaller than a year ago.
• Hartford, CT saw the largest drop, losing 1,200 square feet for a $3,000 payment.

Home size per dollar still largest in Memphis and the Midwest, despite declines driven by mortgage rates

• Rising mortgage rates last year cut $305,000 off what a buyer could afford with a $3,000 payment, but that trend has started to reverse.
• Affordable active markets in the Midwest and Great Lakes regions saw the largest declines in purchasing power in 2022, but still offer some of the biggest houses for the money.
• Mortgage costs nearly doubled since 2019, but have eased slightly in recent months.

SEATTLE, Feb. 9, 2023 /PRNewswire/ -- Home buyers' mortgage payments have started stretching a bit further in recent months, a new Zillow® analysis shows. 

As mortgage rates doubled last year, the home price afforded by a $3,000 payment¹ plummeted from $865,000 in January to a low of $560,000 in October. That significantly changed the size and price of homes within a buyer's reach. On average, a $3,000 monthly mortgage payment today buys a home 140 square feet smaller than a home purchased a year ago.

But as rates have dropped from a peak just above 7%, buyers are getting larger homes, with higher price tags, at a fixed monthly cost. The typical home value associated with a $3,000 mortgage payment is up about $60,000 since October and home size has recovered by 84 square feet. 

"Mortgage rates have a huge impact on the types of homes buyers are able to afford. Rates that doubled over the past year carved an extra bedroom or office space off of homes at the national level, though the sting has lessened in recent weeks," said Anushna Prakash, economic data analyst at Zillow. "Buyers in more affordable hot markets are still getting solid bang for their buck, despite losing a lot of purchasing power."

The annual decline is more pronounced in some markets. Hartford saw the largest drop in what $3,000 per month can buy in 2022, losing 1,200 square feet. Buyers in Indianapolis and Cleveland both lost out on more than 1,000 square feet in the last year. Cleveland and Kansas City are among the top 10 metros for home size at this price point and are among Zillow's 10 hottest markets for 2023. 

Homes in less expensive markets have a larger footprint to begin with, and therefore had farther to fall as climbing mortgage rates applied pressure to buyers' wallets. As costs rose in 2022, there were more buyers competing in those markets than in their more expensive counterparts. 

On the other hand, $3,000 per month has always gotten a buyer less space in pricey markets, but their floor plans are shrinking all the same. In San Jose it will buy a 1,052-square-foot home, down from 1,268 square feet last year. Los Angeles, San Diego and San Francisco are close behind, with square footage for each below 1,400 square feet.

Although affordability is still a major challenge, buying power for home shoppers has rebounded in recent months. Since bottoming out in October, home size for a $3,000 payment has increased the most in Salt Lake City (365 square feet), Minneapolis (357), Memphis (346) and Denver (340).

Heading into the home shopping season, shoppers should prepare by improving their credit as much as possible in order to score the best mortgage rate. Even a small rate drop can save tens of thousands of dollars over the life of a loan. A borrower with an "excellent" credit score — between 760 and 850 — can qualify for a 30-year fixed-rate mortgage with a 6.0% interest rate². For the same loan, a similar borrower with a "fair" credit score — between 620 and 639 — qualifies for a 7.58% rate. This equates to a $348 difference in monthly mortgage payments and nearly $125,431 in interest over the life of a 30-year fixed loan, based on the current price of a typical U.S. home ($329,542)³.

The spring sales season is kicking off, and Zillow tools and tech are here to help. More than 1 million shoppers have used the down payment assistance resource built into Zillow's home detail pages, and Zillow's affordability calculator can help determine what kind of home will fit individuals' budgets.

 

Metropolitan Area*	Median Square Footage at $3,000 Payment (Jan. 1, 2023)	Year Over Year Change in Square Feet	Square Footage Increase Since October
Memphis, TN	3,900	-853	346
Indianapolis, IN	3,732	-1,092	298
Cleveland, OH	3,512	-1,004	265
Oklahoma City, OK	3,406	-802	206
Houston, TX	3,395	-412	213
Birmingham, AL	3,312	-686	198
Richmond, VA	3,283	-538	223
Cincinnati, OH	3,258	-554	218
Kansas City, MO	3,125	-707	171
Atlanta, GA	3,122	-735	259
Charlotte, NC	3,084	-643	284
Detroit, MI	3,081	-595	248
Dallas–Fort Worth, TX	3,068	-707	331
Louisville–Jefferson County, KY	3,063	-769	237
Virginia Beach, VA	3,037	-477	212
St. Louis, MO	3,036	-651	216
Pittsburgh, PA	3,010	-783	207
Minneapolis–St. Paul, MN	3,003	-501	357
Hartford, CT	3,003	-1,202	264
Milwaukee, WI	3,000	-900	300
Buffalo, NY	2,972	-888	242
Columbus, OH	2,912	-626	266
San Antonio, TX	2,871	-534	151
Raleigh, NC	2,866	-779	306
New Orleans, LA	2,847	-314	112
Chicago, IL	2,800	-372	206
Las Vegas, NV	2,741	-527	322
Orlando, FL	2,730	-724	242
Philadelphia, PA	2,680	-860	220
Nashville, TN	2,641	-370	194
Baltimore, MD	2,522	-840	242
Jacksonville, FL	2,494	-409	144
Phoenix, AZ	2,413	-471	287
Tampa, FL	2,402	-342	162
Austin, TX	2,387	-321	223
Salt Lake City, UT	2,285	-727	365
Providence, RI	2,192	-592	200
United States	2,172	-140	84
Washington, DC	2,160	-436	192
Denver, CO	2,140	-698	340
Portland, OR	2,111	-604	293
Sacramento, CA	2,076	-460	338
Miami–Fort Lauderdale, FL	1,977	-459	176
Riverside, CA	1,920	-811	220
Seattle, WA	1,790	-210	206
Boston, MA	1,754	-486	163
New York, NY	1,744	-437	99
San Francisco, CA	1,314	-166	114
San Diego, CA	1,268	-482	226
Los Angeles–Long Beach–Anaheim, CA	1,198	-366	111
San Jose, CA	1,052	-176	149

*Table ordered by median square feet as of Jan. 1, 2023

¹ Mortgage payment assumes the weekly average 30-year fixed mortgage rate from the Freddie Mac Primary Mortgage Market Survey® and a 20% down payment.
² Based on the FICO® Loan Savings Calculator on myfico.com. Rates as of Feb. 7, 2023.
³ According to the Zillow Home Value Index (ZHVI) national raw figure for January 2023.

About Zillow Group
Zillow Group, Inc. (NASDAQ: Z and ZG) is reimagining real estate to make it easier to unlock life's next chapter. As the most visited real estate website in the United States, Zillow® and its affiliates offer customers an on-demand experience for selling, buying, renting, or financing with transparency and ease. 

Zillow Group's affiliates and subsidiaries include Zillow®; Zillow Premier Agent®; Zillow Home Loans™; Zillow Closing Services™; Trulia®; Out East®; StreetEasy®; HotPads®; and ShowingTime+℠ , which houses ShowingTime®, Bridge Interactive®, and dotloop® and interactive floor plans. Zillow Home Loans, LLC is an Equal Housing Lender, NMLS #10287 (www.nmlsconsumeraccess.org). 

 

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SOURCE Zillow

FAQ

What does the latest Zillow report say about home buyers' purchasing power?

The latest Zillow report indicates that home buyers are gaining more purchasing power, with a $3,000 payment purchasing homes valued at around $620,000, an increase of $60,000 from last October.

Which markets are seeing the most significant declines in home size?

Hartford, CT has seen the largest decline, losing 1,200 square feet, while Indianapolis and Cleveland both lost over 1,000 square feet.

How much has the average home size increased since October 2022?

Since October 2022, the average home size has increased by 84 square feet.

What should home buyers do to secure better mortgage rates?

Home buyers are advised to improve their credit scores to qualify for better mortgage rates, as even a slight decrease in rate can lead to significant savings.